ERP Modules Important to Understand for Future Supply Chain Finance Structures

Many tech providers look at supply chain finance as a technology issue. An effective platform must take in invoices, provide dispute management, credit notes, audit trails, etc, that are visible to all or relevant parties. But this all starts with a companies ERP system. ERP systems are extremely complicated and there are many modules used to run a business. In addition, they are often customized by industry, so that an ERP system in the financial services industry will have different modules compared to one in the oil industry.

ERP and the Business Accounting Layer

From a future business credit perspective, we are mainly interested in four modules: Supply Chain, Materials Management, Finance, and Procurement. The Spend Matters team has written a ton about ERP systems and I refer you to the ERP Archives

Click here to download your copy of the 2016 State of Supply Chain Finance Industry

Jason summarized these four modules:

The SCM module is used mainly in a manufacturing environment to ensure that the raw materials that are needed to produce the final product are available at the correct time and place. This module is linked to the sales forecasting system, so as sales are booked for a product so the corresponding raw materials are automatically ordered. As such, the SCM module is mainly used for strategic procurement.

The SCM module is linked to another module, called Materials Management (MM). MM links the manufacturer and the raw material supplier and is highly automated, so that orders are placed automatically and information about goods delivery and invoicing is also automated. This automation usually uses a system called EDI (electronic data interchange).

The Procurement Module is used for non-strategic, or indirect, spend. The Procurement Module also links to front-end systems, such as e-procurement, that employees use to place orders, plus the Finance module that is used to raise Purchase Orders and pay suppliers.

The Finance module maintains the accounts payables system. When a purchase order is raised, this creates a liability for the company (as they owe money to a supplier). Once the invoice is received and the payment authorized, this liability can be closed and the appropriate cash account debited.

Trend Towards Cloud-Based Systems

As with many enterprise systems, there is a general trend to cloud-based solutions. This trend is driven by the lower operational cost compared to a licensed or “behind-the-firewall” traditional option. The move to the cloud allows the ERP systems to link directly to other cloud-based enterprise solutions, such as electronic invoicing.

Why this is Important

Companies accounting systems feed vendor platforms (think Supplier Networks, eInvoicing networks, B2B Networks) either via direct integration with ERP systems or through data warehouses.

Most of these vendor platforms don’t touch core systems – they touch data warehouses, typically via their cloud applications, and use a portal as a tool set. For example, Taulia or PrimeRevenue need data from the accounting system. These vendors extract information from the data warehouse after the process of getting specific supplier invoices approved in the ERP system flows to the data warehouse.

This in turns creates a few interesting questions:

  • Data warehouses generate a huge amount of data. Key questions are where does the information come from and what’s the quality of that information?
  • What information can platforms share, what are the privacy rules around what they can share, and how efficient they can be feeding new underwriting and risk models.

Today, we are just scratching the surface as non bank providers dance with the technology vendors.

Click here to download your copy of the 2016 State of Supply Chain Finance Industry

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First Voice

  1. Manufacturing Software:

    “ERP systems are extremely complicated” – fully agree, but there are also more compact, easy-to-use, cloud-based ERP/MRP systems.

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